Intrinsic value of Fomento Economico Mexicano ADR - FMX

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$97.37

  Intrinsic Value

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  Value-price divergence*

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$97.37

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of FMX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 31.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  28.22
  28.20
  25.88
  23.79
  21.91
  20.22
  18.70
  17.33
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.28
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
Revenue, $m
  20,242
  512,168
  644,717
  798,108
  972,996
  1,169,751
  1,388,486
  1,629,103
  1,891,332
  2,174,783
  2,478,995
  2,803,479
  3,147,757
  3,511,397
  3,894,039
  4,295,414
  4,715,362
  5,153,844
  5,610,944
  6,086,875
  6,581,980
  7,096,729
  7,631,718
  8,187,663
  8,765,401
  9,365,882
  9,990,167
  10,639,425
  11,314,930
  12,018,059
  12,750,289
Variable operating expenses, $m
 
  457,214
  574,462
  710,145
  864,844
  1,038,885
  1,232,371
  1,445,211
  1,677,167
  1,927,897
  2,196,991
  2,479,845
  2,784,380
  3,106,042
  3,444,512
  3,799,552
  4,171,022
  4,558,885
  4,963,218
  5,384,207
  5,822,157
  6,277,484
  6,750,713
  7,242,480
  7,753,524
  8,284,686
  8,836,904
  9,411,211
  10,008,736
  10,630,696
  11,278,397
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  18,561
  457,214
  574,462
  710,145
  864,844
  1,038,885
  1,232,371
  1,445,211
  1,677,167
  1,927,897
  2,196,991
  2,479,845
  2,784,380
  3,106,042
  3,444,512
  3,799,552
  4,171,022
  4,558,885
  4,963,218
  5,384,207
  5,822,157
  6,277,484
  6,750,713
  7,242,480
  7,753,524
  8,284,686
  8,836,904
  9,411,211
  10,008,736
  10,630,696
  11,278,397
Operating income, $m
  1,681
  54,954
  70,255
  87,963
  108,152
  130,865
  156,116
  183,893
  214,164
  246,886
  282,004
  323,633
  363,377
  405,355
  449,527
  495,862
  544,341
  594,959
  647,727
  702,668
  759,823
  819,245
  881,004
  945,183
  1,011,877
  1,081,196
  1,153,264
  1,228,214
  1,306,194
  1,387,363
  1,471,892
EBITDA, $m
  2,376
  71,686
  90,239
  111,708
  136,187
  163,726
  194,341
  228,019
  264,722
  304,396
  346,975
  392,392
  440,580
  491,477
  545,034
  601,213
  659,991
  721,364
  785,342
  851,957
  921,255
  993,302
  1,068,182
  1,145,996
  1,226,860
  1,310,907
  1,398,286
  1,489,160
  1,583,708
  1,682,122
  1,784,609
Interest expense (income), $m
  277
  5,989
  9,857
  14,395
  19,647
  25,635
  32,371
  39,861
  48,099
  57,077
  66,782
  77,198
  88,308
  100,096
  112,546
  125,648
  139,390
  153,769
  168,782
  184,432
  200,728
  217,679
  235,304
  253,621
  272,656
  292,437
  312,997
  334,371
  356,601
  379,730
  403,804
Earnings before tax, $m
  1,447
  48,964
  60,399
  73,568
  88,505
  105,230
  123,745
  144,032
  166,065
  189,808
  215,222
  246,435
  275,068
  305,259
  336,981
  370,214
  404,951
  441,190
  478,945
  518,236
  559,095
  601,566
  645,701
  691,562
  739,221
  788,759
  840,267
  893,842
  949,593
  1,007,633
  1,068,088
Tax expense, $m
  400
  13,220
  16,308
  19,863
  23,896
  28,412
  33,411
  38,889
  44,838
  51,248
  58,110
  66,537
  74,268
  82,420
  90,985
  99,958
  109,337
  119,121
  129,315
  139,924
  150,956
  162,423
  174,339
  186,722
  199,590
  212,965
  226,872
  241,337
  256,390
  272,061
  288,384
Net income, $m
  1,071
  35,744
  44,091
  53,704
  64,609
  76,818
  90,333
  105,143
  121,228
  138,560
  157,112
  179,897
  200,800
  222,839
  245,996
  270,256
  295,614
  322,069
  349,630
  378,312
  408,140
  439,143
  471,362
  504,840
  539,631
  575,794
  613,395
  652,505
  693,203
  735,572
  779,704

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,217
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,645
  640,210
  805,896
  997,635
  1,216,245
  1,462,188
  1,735,608
  2,036,379
  2,364,165
  2,718,478
  3,098,743
  3,504,348
  3,934,696
  4,389,247
  4,867,549
  5,369,267
  5,894,203
  6,442,305
  7,013,680
  7,608,594
  8,227,476
  8,870,912
  9,539,647
  10,234,579
  10,956,751
  11,707,353
  12,487,709
  13,299,282
  14,143,663
  15,022,573
  15,937,861
Adjusted assets (=assets-cash), $m
  25,428
  640,210
  805,896
  997,635
  1,216,245
  1,462,188
  1,735,608
  2,036,379
  2,364,165
  2,718,478
  3,098,743
  3,504,348
  3,934,696
  4,389,247
  4,867,549
  5,369,267
  5,894,203
  6,442,305
  7,013,680
  7,608,594
  8,227,476
  8,870,912
  9,539,647
  10,234,579
  10,956,751
  11,707,353
  12,487,709
  13,299,282
  14,143,663
  15,022,573
  15,937,861
Revenue / Adjusted assets
  0.796
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
Average production assets, $m
  7,046
  119,335
  150,219
  185,959
  226,708
  272,552
  323,517
  379,581
  440,680
  506,724
  577,606
  653,211
  733,427
  818,156
  907,311
  1,000,831
  1,098,679
  1,200,846
  1,307,350
  1,418,242
  1,533,601
  1,653,538
  1,778,190
  1,907,726
  2,042,338
  2,182,251
  2,327,709
  2,478,986
  2,636,379
  2,800,208
  2,970,817
Working capital, $m
  1,604
  1,537
  1,934
  2,394
  2,919
  3,509
  4,165
  4,887
  5,674
  6,524
  7,437
  8,410
  9,443
  10,534
  11,682
  12,886
  14,146
  15,462
  16,833
  18,261
  19,746
  21,290
  22,895
  24,563
  26,296
  28,098
  29,971
  31,918
  33,945
  36,054
  38,251
Total debt, $m
  7,059
  229,223
  334,765
  456,903
  596,157
  752,823
  926,991
  1,118,583
  1,327,382
  1,553,080
  1,795,308
  2,053,679
  2,327,811
  2,617,359
  2,922,038
  3,241,632
  3,576,016
  3,925,158
  4,289,123
  4,668,084
  5,062,311
  5,472,180
  5,898,164
  6,340,836
  6,800,860
  7,278,993
  7,776,080
  8,293,051
  8,830,922
  9,390,788
  9,973,827
Total liabilities, $m
  16,908
  407,814
  513,356
  635,494
  774,748
  931,414
  1,105,582
  1,297,174
  1,505,973
  1,731,671
  1,973,899
  2,232,270
  2,506,402
  2,795,950
  3,100,629
  3,420,223
  3,754,607
  4,103,749
  4,467,714
  4,846,675
  5,240,902
  5,650,771
  6,076,755
  6,519,427
  6,979,451
  7,457,584
  7,954,671
  8,471,642
  9,009,513
  9,569,379
  10,152,418
Total equity, $m
  10,736
  232,396
  292,540
  362,142
  441,497
  530,774
  630,026
  739,206
  858,192
  986,808
  1,124,844
  1,272,078
  1,428,295
  1,593,297
  1,766,920
  1,949,044
  2,139,596
  2,338,557
  2,545,966
  2,761,920
  2,986,574
  3,220,141
  3,462,892
  3,715,152
  3,977,301
  4,249,769
  4,533,038
  4,827,639
  5,134,150
  5,453,194
  5,785,444
Total liabilities and equity, $m
  27,644
  640,210
  805,896
  997,636
  1,216,245
  1,462,188
  1,735,608
  2,036,380
  2,364,165
  2,718,479
  3,098,743
  3,504,348
  3,934,697
  4,389,247
  4,867,549
  5,369,267
  5,894,203
  6,442,306
  7,013,680
  7,608,595
  8,227,476
  8,870,912
  9,539,647
  10,234,579
  10,956,752
  11,707,353
  12,487,709
  13,299,281
  14,143,663
  15,022,573
  15,937,862
Debt-to-equity ratio
  0.658
  0.990
  1.140
  1.260
  1.350
  1.420
  1.470
  1.510
  1.550
  1.570
  1.600
  1.610
  1.630
  1.640
  1.650
  1.660
  1.670
  1.680
  1.680
  1.690
  1.700
  1.700
  1.700
  1.710
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.720
Adjusted equity ratio
  0.335
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,071
  35,744
  44,091
  53,704
  64,609
  76,818
  90,333
  105,143
  121,228
  138,560
  157,112
  179,897
  200,800
  222,839
  245,996
  270,256
  295,614
  322,069
  349,630
  378,312
  408,140
  439,143
  471,362
  504,840
  539,631
  575,794
  613,395
  652,505
  693,203
  735,572
  779,704
Depreciation, amort., depletion, $m
  695
  16,732
  19,983
  23,745
  28,035
  32,860
  38,225
  44,127
  50,558
  57,510
  64,971
  68,759
  77,203
  86,122
  95,506
  105,351
  115,650
  126,405
  137,616
  149,289
  161,432
  174,057
  187,178
  200,813
  214,983
  229,711
  245,022
  260,946
  277,514
  294,759
  312,718
Funds from operations, $m
  3,069
  52,476
  64,074
  77,450
  92,643
  109,679
  128,559
  149,270
  171,786
  196,070
  222,083
  248,656
  278,003
  308,961
  341,502
  375,607
  411,264
  448,474
  487,246
  527,601
  569,571
  613,200
  658,539
  705,653
  754,614
  805,505
  858,417
  913,451
  970,716
  1,030,331
  1,092,422
Change in working capital, $m
  529
  338
  398
  460
  525
  590
  656
  722
  787
  850
  913
  973
  1,033
  1,091
  1,148
  1,204
  1,260
  1,315
  1,371
  1,428
  1,485
  1,544
  1,605
  1,668
  1,733
  1,801
  1,873
  1,948
  2,027
  2,109
  2,197
Cash from operations, $m
  2,540
  70,673
  63,677
  76,990
  92,119
  109,088
  127,903
  148,548
  170,999
  195,220
  221,171
  247,683
  276,970
  307,870
  340,355
  374,403
  410,005
  447,158
  485,874
  526,173
  568,086
  611,656
  656,935
  703,985
  752,881
  803,703
  856,544
  911,503
  968,690
  1,028,222
  1,090,225
Maintenance CAPEX, $m
  0
  -9,792
  -12,562
  -15,813
  -19,575
  -23,864
  -28,690
  -34,054
  -39,956
  -46,387
  -53,339
  -60,801
  -68,759
  -77,203
  -86,122
  -95,506
  -105,351
  -115,650
  -126,405
  -137,616
  -149,289
  -161,432
  -174,057
  -187,178
  -200,813
  -214,983
  -229,711
  -245,022
  -260,946
  -277,514
  -294,759
New CAPEX, $m
  -1,084
  -26,310
  -30,884
  -35,740
  -40,749
  -45,844
  -50,965
  -56,064
  -61,099
  -66,044
  -70,881
  -75,605
  -80,217
  -84,728
  -89,155
  -93,520
  -97,848
  -102,166
  -106,504
  -110,892
  -115,359
  -119,937
  -124,652
  -129,535
  -134,613
  -139,912
  -145,458
  -151,277
  -157,393
  -163,829
  -170,610
Cash from investing activities, $m
  -1,958
  -36,102
  -43,446
  -51,553
  -60,324
  -69,708
  -79,655
  -90,118
  -101,055
  -112,431
  -124,220
  -136,406
  -148,976
  -161,931
  -175,277
  -189,026
  -203,199
  -217,816
  -232,909
  -248,508
  -264,648
  -281,369
  -298,709
  -316,713
  -335,426
  -354,895
  -375,169
  -396,299
  -418,339
  -441,343
  -465,369
Free cash flow, $m
  582
  34,571
  20,231
  25,437
  31,795
  39,381
  48,247
  58,430
  69,944
  82,789
  96,950
  111,278
  127,994
  145,939
  165,077
  185,376
  206,806
  229,342
  252,965
  277,665
  303,438
  330,287
  358,226
  387,272
  417,455
  448,808
  481,375
  515,204
  550,351
  586,879
  624,857
Issuance/(repayment) of debt, $m
  1,073
  89,935
  105,542
  122,138
  139,254
  156,666
  174,169
  191,591
  208,799
  225,698
  242,229
  258,370
  274,132
  289,549
  304,678
  319,595
  334,384
  349,141
  363,966
  378,960
  394,227
  409,869
  425,985
  442,671
  460,024
  478,133
  497,087
  516,972
  537,871
  559,866
  583,038
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  676
  89,935
  105,542
  122,138
  139,254
  156,666
  174,169
  191,591
  208,799
  225,698
  242,229
  258,370
  274,132
  289,549
  304,678
  319,595
  334,384
  349,141
  363,966
  378,960
  394,227
  409,869
  425,985
  442,671
  460,024
  478,133
  497,087
  516,972
  537,871
  559,866
  583,038
Total cash flow (excl. dividends), $m
  1,332
  124,506
  125,773
  147,575
  171,050
  196,046
  222,416
  250,021
  278,743
  308,486
  339,179
  369,648
  402,126
  435,488
  469,756
  504,971
  541,190
  578,483
  616,931
  656,625
  697,665
  740,156
  784,210
  829,944
  877,479
  926,941
  978,462
  1,032,176
  1,088,222
  1,146,745
  1,207,895
Retained Cash Flow (-), $m
  -1,539
  -51,114
  -60,144
  -69,601
  -79,355
  -89,277
  -99,251
  -109,180
  -118,986
  -128,616
  -138,036
  -147,235
  -156,216
  -165,002
  -173,624
  -182,124
  -190,552
  -198,961
  -207,409
  -215,954
  -224,654
  -233,567
  -242,751
  -252,260
  -262,149
  -272,468
  -283,269
  -294,601
  -306,510
  -319,045
  -332,249
Prev. year cash balance distribution, $m
 
  30,622
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  104,014
  65,629
  77,974
  91,694
  106,769
  123,164
  140,841
  159,757
  179,870
  201,142
  222,413
  245,910
  270,486
  296,132
  322,847
  350,638
  379,522
  409,522
  440,672
  473,011
  506,589
  541,459
  577,683
  615,330
  654,473
  695,193
  737,575
  781,712
  827,701
  875,646
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  98,872
  59,009
  65,965
  72,577
  78,588
  83,762
  87,890
  90,806
  92,394
  92,593
  90,938
  88,458
  84,742
  79,938
  74,237
  67,853
  61,015
  53,956
  46,899
  40,044
  33,566
  27,601
  22,248
  17,565
  13,569
  10,248
  7,559
  5,439
  3,813
  2,602
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Fomento Económico Mexicano, S.A.B. de C.V., through its subsidiaries, operates as a bottler of Coca-Cola trademark beverages and a chain of small-format stores. It produces, markets, sells, and distributes Coca-Cola trademark beverages, including sparkling beverages, such as colas and flavored sparkling beverages; waters; and still beverages comprising juice drinks, coffee, teas, milk, value-added dairy products, and isotonic drinks. The company also operates a chain of small-format stores under the OXXO brand in Mexico, as well as operates other small-format stores, which include soft discount stores with a focus on perishables and liquor stores. As of December 31, 2015, it operated 14,061 OXXO stores, of which 14,015 are located in Mexico and 46 stores are located in Bogota, Colombia. In addition, the company offers various logistics and vehicle maintenance services to clients in the beverages, consumer products, and retail industries in Mexico, Brazil, Colombia, Panama, Costa Rica, Nicaragua, and Peru; and vertical and horizontal commercial refrigerators for the soft drink, beer, and food industries. The company markets its products through retail outlets, such as wholesale supermarkets, discount stores, and convenience stores that sell fast-moving consumer goods in Mexico, Central America, Colombia, Venezuela, Brazil, Argentina, and the Philippines. The company was founded in 1890 and is headquartered in Monterrey, Mexico.

FINANCIAL RATIOS  of  Fomento Economico Mexicano ADR (FMX)

Valuation Ratios
P/E Ratio 1626.6
Price to Sales 86.1
Price to Book 162.3
Price to Tangible Book
Price to Cash Flow 685.9
Price to Free Cash Flow 1196.5
Growth Rates
Sales Growth Rate 28.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.2%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 62.3%
Total Debt to Equity 65.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 39.5%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 7.1%
Pre-Tax Margin - 3 Yr. Avg. 8.1%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 57%

FMX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMX stock intrinsic value calculation we used $399507 million for the last fiscal year's total revenue generated by Fomento Economico Mexicano ADR. The default revenue input number comes from 2016 income statement of Fomento Economico Mexicano ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FMX stock valuation model: a) initial revenue growth rate of 28.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.2%, whose default value for FMX is calculated based on our internal credit rating of Fomento Economico Mexicano ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Fomento Economico Mexicano ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FMX stock the variable cost ratio is equal to 89.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FMX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Fomento Economico Mexicano ADR.

Corporate tax rate of 27% is the nominal tax rate for Fomento Economico Mexicano ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FMX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FMX are equal to 23.3%.

Life of production assets of 9.5 years is the average useful life of capital assets used in Fomento Economico Mexicano ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FMX is equal to 0.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $211904 million for Fomento Economico Mexicano ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 324.018 million for Fomento Economico Mexicano ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Fomento Economico Mexicano ADR at the current share price and the inputted number of shares is $31.5 billion.


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COMPANY NEWS

▶ Stock Market News for May 01, 2017   [May-01-17 09:56AM  Zacks]
▶ Fomento Economico posts 1Q profit   [10:31AM  Associated Press]
▶ FEMSA Files 2016 SEC Annual Report   [Apr-21-17 05:30PM  Marketwired]
▶ FEMSA Shareholders Approved Ps. 8,636 Million Dividend   [Mar-16-17 05:45PM  Marketwired]
▶ [$$] Femsa: A Global Mexican Play   [Mar-11-17 12:36AM  Barrons.com]
▶ Mexicos FEMSA Posts Mixed Earnings   [Mar-01-17 01:28PM  Investopedia]
▶ Stock Market News for February 28, 2017   [Feb-28-17 10:10AM  Zacks]
▶ Fomento Economico posts 4Q profit   [09:42AM  Associated Press]
▶ Barclay's Top 5 Picks for High Return in 2017   [Dec-12-16 04:25PM  at Investopedia]
▶ What Smart Money Has To Say About Novartis AG (ADR) (NVS)   [Dec-05-16 04:11PM  at Insider Monkey]
▶ Hedge Funds Are Betting On Oracle Corporation (ORCL)   [Dec-01-16 12:50PM  at Insider Monkey]
▶ Why Is The Coca-Cola Co (KO) Bleeding Smart Money?   [Nov-23-16 12:11PM  at Insider Monkey]
▶ Mexico Peso Higher: Clinton Tops Trump In New Poll   [Sep-15-16 10:44AM  at Barrons.com]
▶ Ohio Likes Trump, Mexico Peso Dumped   [Sep-14-16 11:29AM  at Barrons.com]
▶ ELAAX, MALTX, PRLAX: 3 South American Equity Mutual Funds   [Aug-30-16 05:55PM  at Investopedia]
▶ Five Mexican Stocks Hedge Funds Are Bullish On   [Jun-11-16 06:04PM  at Insider Monkey]
▶ FEMSA Comercio Enters Convenience Store Space in Chile   [Jun-06-16 04:35PM  Marketwired]
▶ FEMSA Announces First Quarter 2016 Results   [Apr-28-16 05:10PM  Marketwired]
▶ EWW: Mexico Capped ETF Performance Case Study   [Apr-27-16 11:20PM  at Investopedia]
▶ MEXICAN ECONOMIC DEVELOPMENT INC Financials   [01:04PM  EDGAR Online Financials]
▶ FEMSA Files 2015 SEC Annual Report   [Apr-21-16 09:00AM  Marketwired]
▶ FEMSA Announces Successful Issuance in Euro Bond Market   [Mar-18-16 04:35PM  Marketwired]
Stock chart of FMX Financial statements of FMX Annual reports of FMX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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